Moody’s downgrades Lebanon, cites default risk

A worker walks past food items displayed for sale inside a supermarket in Beirut, Lebanon November 5, 2019. (Reuters)
Updated 05 November 2019

Moody’s downgrades Lebanon, cites default risk

  • Lebanon’s issuer rating, which was lowered from Caa1, remained under review for downgrade
  • The price of Lebanon’s dollar eurobonds fell by more than 2 cents in the dollar

BEIRUT: Moody’s Investors Service on Tuesday downgraded Lebanon’s rating to Caa2, citing the increased likelihood of a debt rescheduling it would classify as a default, following protests that toppled the government and shook investor confidence.
Lebanon’s issuer rating, which was lowered from Caa1, remained under review for downgrade, Moody’s said. Moody’s classifies Caa ratings as very high credit risk.
“In the absence of rapid and significant policy change, a rapidly deteriorating balance of payments and deposit outflows will bring GDP growth to or below zero, further stoking social discontent, undermining debt sustainability and increasingly threatening the viability of the peg,” the ratings agency said.
Several weeks of protests have led to the resignation of Prime Minister Saad Al-Hariri, stalling the chances of reforms to the 2020 budget and further draining Lebanon’s already depleted foreign exchange reserves.
In a sign of Lebanon’s increasing financial stress, the cost of insuring its debt has touched record levels in recent weeks and eurobond yields have risen to distressed levels. On Tuesday, the price of Lebanon’s dollar eurobonds fell by more than 2 cents in the dollar, according to Tradeweb data.
Moody’s said it expected the central bank’s usable foreign exchange buffer of about $5-10 billion will “likely be consumed” by the government’s forthcoming external debt service payments estimated at $6.5 billion this year and next, including a $1.5 billion maturity on Nov. 28.
The rating and review for further downgrade “reflect the increasing likelihood of a debt rescheduling or other credit negative liability management exercise that could result in private sector holders of government liabilities suffering significant losses,” Moody’s said.
That would constitute a default under Moody’s definition, it added.
Lebanon has never defaulted on its external debt, despite frequent bouts of political and security instability.
The central bank’s holdings of government securities implied Lebanon had options for debt management in the near-term that would limit losses for the private sector in the event of a default, Moody’s said.
Options such as debt maturity extension or debt cancelation involving the central bank’s debt holdings amounting to 50% of GDP could help as long as the currency’s peg to the US dollar remained, the agency said.
“However, those options are diminishing the longer Lebanon’s economic and political crisis persists,” it added.


Riyadh to host next World Economic Forum regional summit

Updated 23 January 2020

Riyadh to host next World Economic Forum regional summit

  • The theme of the meeting will be the place of the region in the fourth industrial revolution
  • Middle East WEF’s in the past have been staged in Egypt, Jordan and some have been held in the UAE

DAVOS: Saudi Arabia will host the next Middle East summit of the World Economic Forum, the first time the Kingdom has staged the prestigious meeting of world leaders, it was announced in Davos on Thursday.

Borge Brende, the WEF president, told delegates: “The next Middle East summit will be held in Saudi Arabia on the 5 and 6 of April this year.”

The theme of the meeting will be the place of the region in the fourth industrial revolution, according to a posting on the official WEF website.

Middle East WEF’s in the past have been staged in Egypt, Jordan and some have been held in the UAE.

The announcement was made at a special meeting at Davos to consider the strategic priorities for Saudi Arabia as it prepares to stage the G20 meeting of world leaders in the Kingdom in November, the first time the power-summit has been held in the Middle East.